“Draining the Swamp” in States’ Backyards Starts with Grant Reform

The views expressed in this article are those of a subject matter expert and do not necessarily reflect model policies adopted by the American Legislative Exchange Council.

The passage of the country’s second-largest spending bill promises a windfall of federal money to states and localities. In many cases, this money will enable the state to address pressing financial needs. It also requires, however, that state legislators ask some questions. Who will control which grants come into your state and under what conditions? Who has a seat at the negotiation table? Will it be your elected officials, accountable to the people? Or will it be unknown bureaucrats with their own agendas? And to get the money, what policies will these bureaucrats agree to that might impair your state’s sovereignty to make its own decisions, or that might inflate state budgets in the long run?

There’s no better time for state legislatures to impose some accountability on the process of taking and spending federal money. Model policy addressing this problem would diminish the power of the unaccountable administrative state to sell out the state’s long-term interests in exchange for federal grants. It would restore power in this process to an official who has an interest in making sure such grants are negotiated in the state’s best interest.

The primary focus of this model policy would be grants of over $1 million. It would require state and local agencies applying for such a major grant to give a heads-up to the governor and the state equivalent of the Office of Management and Budget of certain critical aspects of accepting the grant (for example, a cost/benefit analysis, compliance mandates, and effects on state and local policy). The agency would have to obtain the governor’s consent before proceeding with the grant application.

The model policy would also empower the governor to prohibit smaller grants. And all grant applications would have to be recorded on a public database so taxpayers and legislators are kept informed.

Why do we need these measures? Because the “Swamp” – the federal administrative state, aided by the state-level administrative state – imposes a heavy burden on states and localities in exchange for what legislators know isn’t “free money.” With those funds often come substantial strings that dictate what policies the state must implement, the cost of which may far exceed the amount of the grant. Model policy that members of ALEC may soon consider addresses this issue by requiring the agency to complete an “intense vetting” of the grant’s costs and benefits, an analysis that is then evaluated for accuracy by the state’s equivalent of an Office of Management and Budget. It puts the federal and state agencies on notice at the point the grant application, and its conditions, are being drafted that the application will go through the governor’s office.

As Milton Friedman liked to point out, “There is nothing as permanent as a temporary federal grant.” Federal grant programs have a history of living far past their funding expiration dates. In a 2010 study, economists found that every dollar received through a federal grant stimulates a permanent increase in state and local taxes or revenues of 33-42 cents. Knowing the short and long-term costs of grants up front, as this model requires, can stave off any unforeseen budgetary shortfalls for which state legislatures are often left holding the bag.

State lawmakers and their constituents deserve to know what kinds of deals are being struck to get federal money. Are the deals bad for your state’s independence and taxpayers’ wallets in the long run? If so, your governor should be empowered to put the brakes on when the state is being taken for a ride.

Erin Tuttle is a policy analyst at American Principles Project, providing information and strategies to individuals, organizations, and legislators seeking to limit federal control over state and local policy-setting. She is also a co-author of Deconstructing the Administrative State: The Fight for Liberty, which offers readers a blueprint for restoring the constitutional structure and individual liberty.